Striking the balance: Anti-money laundering reporting obligation vrs legal professional privilege
The legal professional’s code of ethics which includes principles and rules governing the conduct of lawyers to ensure they uphold the integrity of the profession by acting in the best interests of clients and maintaining public trust. These ethical codes address aspects such as confidentiality, diligence, conflicts of interest and honesty in dealing with clients, courts and other legal professionals.
Violations in the code of ethics may lead to disciplinary actions, including suspension or disbarment from the legal profession. International organisations like the International Bar Association (IBA), the United Nations and legal professional codes within respective countries have established principles emphasizing the importance of lawyer-client confidentiality and the need to protect lawyers from undue interference.
Generally, lawyers have an obligation to maintain clients’ confidentiality, meaning they are not typically required to report their clients’ actions to authorities. However, while there are exceptions, such as when a lawyer knows that their client is about to commit a crime or when disclosure is necessary to prevent serious bodily harm, these client privileges may be limited.
Lawyers who become suspicious of their client’s activities may need to make some hard decisions about what information to report under the anti-money laundering regime and whether they are able to report at all.
In line with best practice, lawyers, notaries, other independent legal professionals acting as independent legal professionals, are not required to report suspicious transactions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege. That notwithstanding, legal professionals are expected to observe anti-money laundering measures including the reporting of suspicious transactions to competent authorities when they prepare for, or carry out, transactions for their client concerning the following activities:
(i) buying and selling of real estate;
(ii) managing of client money, securities or other assets;
(iii) management of bank, savings or securities accounts;
(iv) organisation of contributions for the creation, operation or management of companies;
(v) creating, operating or management of legal persons or arrangements and buying and selling of business entities.
These anti-money laundering measures include conducting client due diligence to understand the activities of clients, reporting suspicious activities of clients, maintaining client confidentiality, assessing money laundering risk, observing record-keeping requirements and understanding the implications of anti-money laundering for the legal profession. Additionally, aspects of implementing anti-money laundering procedures including the use of technology, staff training and the consequences of non-compliance.
Competent authorities and Self-Regulatory Bodies are to determine the frequency and intensity of their supervisory or monitoring actions on legal professionals on the basis of understanding the risk of money laundering and the potential abuse of their services by their clients. This means having a clear understanding of the money laundering risks present in the country and that associated with clients and legal services.
Countries are to demonstrate that legal professionals have adequate framework to report suspicious activities in the course of their engagements. Where countries allow lawyers, notaries, other independent legal professionals to send their Suspicious Transactions Reports (STRs) to their appropriate Self-Regulatory Bodies (SRBs), there should be forms of co-operation between these bodies and the Financial Intelligence Units. Also, where countries have established that the reporting of suspicious activity of clients is to be sent to the Financial Intelligence Units, there should be mechanisms to determine its implementation and effectiveness.
Legal professionals are to take deliberate steps to observe the interrelatedness between anti-money laundering reporting obligations and the protection of client confidentiality. While there are exceptions, such as mandatory reporting for serious crimes, lawyers may face ethical dilemmas when balancing this obligation with client confidentiality.
Lawyers are also to highlight common warning signs when dealing with clients, particularly so that their services are not abused by criminals, who may be looking out to abuse the services of legal professionals for their illicit activities.
The Writer is a Financial Crime Specialist
BY RITA YEBOAH QUAYSON
